Imagine this scenario: Brenda is 59, single, has no children and is eyeing retirement. The hitch? She still has $81,000 outstanding on her mortgage, so she’s wondering if it makes sense to remain in the workforce until it’s paid off.
If she retires with a mortgage, she’d join a growing share of older Canadians who’ve done so. Roughly three in 10 (29%) citizens planning to exit the workforce in the next two years expect to do so with a mortgage, per a survey by Royal LePage.
In 2024, homeowners aged 55 to 64 had a median mortgage debt of $216,873, while also racking up $302,403 in combined debt, according to Loans Canada.
So, should Brenda keep working to avoid lingering debt in her later years?
Pros and cons of paying off your mortgage before retirement
Whether or not you choose to pay off your mortgage before retiring often comes down to personal choice, regardless of whether or not it’s the best financial move.
For some, the peace of mind that comes from not having a large outstanding debt in retirement outweighs any financial downsides.
After all, as long as you’re carrying a mortgage, there’s always some risk of foreclosure — and if you’re out of the workforce, this can be much harder to recover from.
The decision isn’t clear cut. Since housing costs are lower when you no longer have a mortgage, paying it off may free up cash for other expenses.
On the other hand, using a large chunk of your retirement savings to pay off your mortgage may reduce the monthly amount you can withdraw from in retirement and hurt your cash flow more than having a mortgage payment would.
Also, the money you use to pay down the mortgage goes toward your home equity, which isn’t easily available for cash flow.
Relative returns play a big part
It may not make sense to pay off your mortgage if your potential investment returns are higher than the interest on your mortgage. In other words, you may not want to pay down a 5% mortgage with money that could be earning 8% if it stays invested, advised Dana Anspach, founder of a financial advisory firm in an interview with U.S. News & World Report.
However, “while it’s possible to make more money in the market than paying off your mortgage, it’s not guaranteed,” Jay Zigmont, founder of Childfree Wealth told the saem outlet. He tells clients to “look at paying off their mortgage as a tax-free, risk-free return of the interest saved.”
But not all advisors agree. “Paying off the mortgage at retirement is rarely beneficial,” David M. Williams, director of planning services for Wealth Strategies Group, told insurance provider MassMutual in March. “Maintaining and managing a mortgage may actually improve retirement cash flow.”
The decision also depends on your individual situation.
If you don’t have investments and are relying solely on the Canada Pension Plan (CPP) for income, then it can make sense to work a bit longer and try to pay down the mortgage for your peace of mind and the extra retirement cash flow this could bring.
If you’re heading for retirement and concerned you can’t carry a mortgage after you leave the workforce, then you may want to explore options such as working longer (either to pay it down or build up more savings), working part-time for the first few years of retirement, downsizing your home or even moving to an area with a lower cost of living.
You could also explore whether a reverse mortgage might be right for you, but this option also comes with a lot of pros and cons.
At 59, Brenda still has several options available to her, but she may want to consult with her financial advisor to determine the best path forward and create an updated plan for retirement.
Sources
1. Royal LePage: The new real estate reality for retirees: Exiting the workforce with mortgage debt (May 27, 2025)
2. Loans Canada: Average Debt By Age In Canada: Mortgages, Consumer & Student Loans, by Daniel Schoester (Aug 13, 2024)
3. U.S. News: Should You Pay Off Your Mortgage Before You Retire?, by Brian O’Connell (Jan 15, 2025)
4. MassMutual: Should I be retiring with a mortgage?, by Amy Fontinelle (Mar 11, 2025)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
